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Selling public services

Robert Peston | 22:14 UK time, Wednesday, 9 July 2008

A government document has been leaked to me which may come to be seen as the last gasp of Blairite New Labour.

It has the unappetising title of "Understanding the Public Services Industry: How big, how good, where next?" and it was commissioned by John Hutton, the Secretary of State for Business - who once-upon-a-time was a Blairite ultra and is now, apparently, an enthusiastic Brownite.

The paper, written by Deanne Julius - the head of Chatham House and a former member of the Monetary Policy Committee - claims that this administration's controversial outsourcing and contracting-out of public services has created a world-leading industry for the UK with great export opportunities.

Julius is brainy. So her argument shouldn't be dismissed lightly. But trade unions on the left and Tories on the right are both likely to argue that her paper is consultant-backed spin, or a clever public-relations campaign deficient in real economic meat.

So what exactly is "public services industry"? Well, it's those private and "third sector" enterprises that provide services to the government or to the public on behalf of government. So it includes hospital cleaners, and suppliers of IT to Her Majesty's Revenue and Customs, and trainers of military pilots and managers of private-sector prisons, inter alia.

It's true they all have one big thing in common, which is that they are in receipt of public money. Which means that if they have a shared, valuable, highly developed skill it is in persuading ministers, or local councillors or civil servants to hand them our precious tax wonga.

But arguably what differentiates the hospital cleaner from the software engineer working in HMRC is more significant than the fact that they are both in receipt of public money. Call me unimaginative, but a provider of IT services seems to me to be an IT company, not a "public service" company, even if those IT services are bought by the NHS.

So the attempt by both Julius and Hutton to claim that the public services industry represents a huge homogenous industry seems a trifle ambitious. Others might say it's pretentious and absurd.

But for the record, Julius claims that the contribution to our economy made by the public services industry is £45bn, way greater than food, beverages and tobacco (£23bn), communication (£28bn), electricity, gas and water supply (£32bn) and "hotels and restaurants" (£36bn).

However all that really means is that the government has been handing vast and growing amounts of our tax revenues to private-sector providers of many and varied services.

In fact, the most interesting statistic in the report, perhaps, is that growth in revenues for these recipients of our tax dosh was an impressive 6.8% per year in real terms from 1995/6 to 2003/4. Interestingly, as we elided from the Blair era to the Brown months, the rate of growth slowed very significantly - to 2.9% per annum since 2004.

Which perhaps indicates that the current prime minister isn't quite as enthusiastic about outsourcing, contestability and all that as his predecessor.

To give Julius and Hutton their due, there is a plausible patriotic case for cheerleading on behalf of this slightly nebulous industry - which is that other countries seem to be following the UK's lead in handing over increasing amounts of public service provision to commercial firms, such that there may be a substantial export opportunity for British service providers.

Hutton, in fact, seems to be reinventing himself as the Thatcher of our time: she exported privatisation to the rest of the world; he wants to convert the citizens of other countries to the notion that their public services should be provided by our private sector firms.

It's a worthy ambition. And there is a good case to be put that promoting competition for public service contracts and also between public-service providers reduces the cost of those services while sometimes improving the quality of those services (though there are also plenty of examples of the public purse being handsomely ripped off by private sector bunglers and incompetents, especially when it comes to IT).

But to be clear, it's the competition or bidding contest that tends to yield those benefits, rather than the identity of the provider as from the private, voluntary or public sector.


  • Comment number 1.

    You are 100% correct about IT - and although government cock-ups are more public than private sector fiascos, these guys (in particular the so-called 'systems integrators') rip everyone off royally.

    But none of this excuses government waste in general, and PFI in particular ...

    Export opportunity ? I think you will find this kind of thing is pure pork-barrel politics - it will be mainly home-grown snouts that will be found in the trough (notwithstanding the number of overseas IT companies et al that have prospered at the UK tax-payers' table)

    (PS: 'elide' doesn't mean what you, and many others, think it does)

  • Comment number 2.

    wasn't it yesterday that an opinion poll ( on the beeb's website) that stated
    ' MORI/Unison (sampled 13-15 June) probed the issue of private company involvement in the provision of public services.

    The poll found 79% agreement that public services should be run by "the government or local authorities, rather than by private companies" (up from 66% in 2000); and 77% agreement that staff providing public services "should be employed by the government or local authorities rather than by private companies" (up from 61% in 2000).'

    It's a bit like the protests against the Iraq war - those in power just ignore the wishes of the people . Every one knows ( at least those that read a fortnightly satirical 'organ' ) that handing out loads of dosh to these private organisations to do what should be done publically has cost us dear.

  • Comment number 3.

    I do tend to agree with with (2) and the findings of the MORI poll.

    However, whilst I don't disagree that public organisations should manage their own affairs, how would e.g. a council make itself sufficiently expert in managing IT systems? It seems obvious that their only viable option would be to outsource to 'experts' in the private sector if they don't feel comfortable with e.g. IT as a 'core competency'.

    Perhaps the issue is one of quality of personnel? Is it a naive view to suggest that paying the 'best' private sector people to come and work in the public sector to run such competencies would fix things? Althought it might make them more accountable, I don't know whether I'd be really reassured that the 'snouts in the trough' attitude suggested by (1) would really go away.

    Bigger-picture, I think, with ref to IT, that such 'integration' projects are verging on impossible to successfully manage - regardless of sector. Hard to get people to agree what they want and then see it through over timescales that can run into many years...

  • Comment number 4.

    public service workers,zero,indexed linked pension liabilities,zero. geddit ??

  • Comment number 5.

    This is my exact area of work. The problem is that we:

    - Don't invest in up front analysis, although we say we do;

    - Have had our 'Intelligent Customer' capability eroded by years of cut backs;

    - Have very poor checks and balances to ensure the Customer does their job properly;



  • Comment number 6.

    The problem of Privatising Public Service has two elements:


    Cost plus Profit margin;

    Obviously people believe that the Private Sector will be more efficient.
    Sadly there is plenty of evidence (especially in IT) that the Private Sector is not automatically more efficient.

    Good Managers can exist in the Public Sector (and they do).

    Unfortunately People forget that the Private Sector always requires a Profit margin over and above the efficient deployment of resources.

    So if the NHS can employ ten Nurses directly, a Private company for the same money can only employ nine including Profit Margin, assuming wages remain constant in the Market place.

    Ceteris Paribus as they might say.

    So any Public Services taken Private always lose resource to the Profit Margin.

    Sometimes wage cuts or efficiency drives (lower services) mean that costs after Profit Margin are still less than the Public equivalent.

    By the way I am a Capitalist, but I do believe in value for money and the Private sector does not always provide the answer for Public projects or Public Services.

    To prove I am why not read my post about Convertible Preference Shares under B and B, post 60 something !

    See I'm not a Commie and I can see the value of the Public Sector !

  • Comment number 7.

    Post 5 I agree 100% with your comments.

    PFI will be the bankrupting of the UK as we have to pay ever increasing amounts for properties we do not own and which will leave us with nothing at the end.

    It is just like an interest only mortgage arranged via a sub prime broker.

  • Comment number 8.

    "he wants to convert the citizens of other countries to the notion that their public services should be provided by our private sector firms."

    After the disastrous effects on state utilities caused by the World Bank's and IMF's insistence that aid/loans be tied to privatisation, he might have difficulty with that.

    If any of these countries look at the state our public services have been left in by private sector contracts, they'll run a mile.

  • Comment number 9.

    There is a big difference between paying commercial rates for tangible goods, clearly measurable services and intangibles such as "project management" (not real PM but the fake stuff sold to the government under agreed-in-advance false pretences) aka "consulting".

    Additionally, and unfortunately, after a short period the prices for goods and services become the driving force for price and availability in the real marketplace simply because of the scale of the public monopoly on spending, and suddenly instead of using commercial rates as a driver, the public sector buying power is now the guiding rate for supply. Then the pigs can truly start getting their snouts in - to both the public and private wallets.

    What starts out as competative for private commernce becomes an expensive publiv fiasco.

  • Comment number 10.

    I would like to see a much deeper analysis of public sector service IT contracts.

    As far as I can tell pretty much 100% of the hardware procured by the UK public sector is of overseas origin and I would guestimate that at least 50% and probably more of the software is also not a UK product.

    If one strips all this out of the value of public sector contracts then I suspect it it worth a lot less to UK suppliers than we suspect and most of the "real" value is going to overseas companies.

  • Comment number 11.

    This is back door privatisation of the Civil Service. Government no longer regards self sufficiency with the service as important.

    This back door is also an entry point for corruption to embed itself within the Civil Service.

    As a nation we have not experienced this on a large scale in recent times, perhaps now we will.

  • Comment number 12.

    Its all well an dandy to outsource anything so long as there is a good contract that protects the customer.
    What we have had are hopeless working contracts that do anything but and a huge deficiit based on "off balance sheet" liabilities that has been designed to hide the real extent of the mess that is PFI.
    A system designed by the previous and present PM who neither had any business experience.
    Is there any wonder the taxpayer is shafted now and starting to realise that prudence and due diligence were but mere rhetorical fantacies of this administration.

  • Comment number 13.

    Robert, it seems that all you are saying here is that under Blair and Brown the New Labour government has been privatising much of what the state does at national and local levels. Whether this process benefits joe and jane public in general is uncertain, especially when we consider some of the horror stories in the NHS etc. This type of thing has been going on in the US for sometime and has certainly expanded during the Iraq war. Some argue it is an attempt to commandeer what is left of highly 'prized' state severvices that were once out of bounds to the private sector. As you imply: create a new 'sector' for private capital. However, whether this 'conspiritorial view' is true or not doesn't alter the fact that these companies doing this state funded work, will have to have an international focus otherwise they will be extremely vulnerable as government spending contracts. In a recession, I'm not sure I'd like to run a company that is entirely tied to the public purse.

  • Comment number 14.

    The concept of public services is that the state is the guarantor of the service. On this basis it ought to be cheaper for the state to provide the services direct to user rather than buy in a third party provider who will be looking to draw a profit as well.

    If, as it would seem, that a third party can provide these services better, invest in the necessary infrastructure and make a profit, then one can only ask why couldn't the state do it better for less?

    If, as the state seems to be saying, that it is unable to provide cost effective public services of a satisfactory standard then this challenges the entire concept of public services, per se.

    The best idea then is that the state stops levying the taxes to provide public services it cannot run either effectively or satisfactorily and leaves the taxpayer with the money in their pocket to find or create their own solutions.

    Surely these services will be even more cost effective and user-friendly if we cut out all the middle-persons?

  • Comment number 15.

    Thing is, when the private sector takes parts of the public sector over and appears to be running it cheaper, it's usually for one of two - and sometiomes both - of the following reasons:-

    a. They receive huge state subsidies, as in the case of the rail system and roads built under PFI/PPP such as the A55.

    b. They pay minimum wages and disgracefully exploit (yes exploit) their workforce which a lot of the time consists of migrant workers who don't even realise they are being exploited.

    In a substantial number of cases if they had to stand on their own 2 feet AND pay their staff a decent wage they would collapse.

    In short, they are capitalists who don't actually believe in the capitalist system other than to exploit the state like parasites which in turn, because it has no money of it's own, has to take it from the taxpayer.

  • Comment number 16.

    I think this requires a little more analysis.

    While in general PFI projects and suchlike have been nothing but siphoning of tax monies to companies who have little experience of care to deliver a reasonable service (Metronet, CapitaRAS etc) it is worth commenting on one industry that has been a success - Welfare To Work.

    Unemployment during the Labour years has declined by over 3 million in real terms as a result of PPP arrangements with a number of providers of welfare to work such as Working Links, TNG and Reed In Partnership. The reason these work is because Jobcentre Plus has been nothing short of a disaster at actually helping long term unemployed back into work. Left to Jobcentre and the smaller voluntary organisations, most unemployed people would be highly educated in profoundly unhelpful courses but would have no ability to find work after this.

    It is not entirely fair to tar every private organisation with the same brush, and the net saving that Welfare To Work companies make to economy justifies fully the money they make from their work.

    Before anyone asks, this model has been tried and works successfully ina number of other countries and is being considered across Europe. Certain Mr Cameron has no intention of criticising it since he'll run with it if/when he gets power from Heathcliff!

  • Comment number 17.

    It is totally naive to think the expertise gained is in any way exportable, when a lot of other countries approach is one on growing, nurturing and protecting local talent.
    Other European countries are picking up Open Source to run with. Why? There are no lockins with US software companies, and services and expertise to implement stay in the region. It's a win-win, they spend less, invest local and the results are truly public spirited.
    Despite this, the UK usage of Open Source is low in comparison, because of the dominance of the consultancies who will always advise on proprietary software for which they can get "busloads of consultants" on projects. That, and the insistence by UK public sector that their needs are unique to everyone else and require a bespoke solution.

  • Comment number 18.

    #6 This is an old argument, and it is still based on a false premise.

    Profit is the (uncertain) payment to the shareholders of an enterprise, for the use of the capital they have invested in it. The public sector also needs capital, it pays directly for that which it borrows in the markets, the remainder belongs to the taxpayer, and the "profit" from this is distributed as public services.

    Hence "privatising" ten nurses not only takes their salaries off the public books, it also frees up any taxpayer capital that was required in their employment, capital which the owners of the private company will then have to provide, and which (rightly) they should be paid for.

    Basically, publicly owned capital also needs to generate a profit, it is just not easy to measure it, let alone account for it to the taxpayers. It is one of the main reasons why private companies are sometimes thought to be more careful in deploying it.

  • Comment number 19.

    I am open to the economic arguments about outsourcing but is there not an issue of accountability? Who is liable for implementing health and safety law in an NHS hospital if an accident occurs as a result of a contractor error? Who carries the can if my personal data is comprised in a government system managed by a private company? Who is responsible for security at private prisons - The Prison Service or Group4?

    The risk of contracting out becoming a 'buck passers charter' is real and responsibilities must be transparently allocated when contracts are made - preferably before someone thinks of contracting out wire tapping and surveillance.

    "Infringe your basic human rights? Us? But maybe the contractors . . .?"

  • Comment number 20.

    Dr Julius has a distinguished record. I can only fear that exposure for too long within the Treasury has affected her.

    There is no such thing as the Public Service sector. There are disparate companies doing a wide range of jobs which are paid for our of public funds.

    It is arguable whether public tasks should be performed by people paid directly by government, or via private organisations.

    It is hog-wash to imagine that there could be a UK Public Sector Service providers export-drive.

    Could UK cleaning companies set up overseas? Of course. Could they win contracts in the face of local companies, even if governments accepted that cleaning should not be a hospital directly-managed discipline? Maybe - until they have to take potential clients on tours of different hospitals they service in the UK!

    Get real. IT is a major part of public spend. There is not even a single UK company bidding to deliver the ID card service...
    EDS (US company) provides (too expensively and often with great overruns) services to many departments. Accenture (US) and Fujitsu (Japanese) were winners of part of the great NHS systems fiasco, until deciding it wasn't worth the candle.

    If the government could point to significant successes in measured "end-user" benefit as well as cost-savings, that should be enough. That could be harder.

    Goodness knows what the total off-balance sheet costs of the various hospitals/schools transport etc PFI deals amount to. From what I've read, these have not been the most startlingly well negotiated deals, so our kids will have a lot of paying back to do.

  • Comment number 21.

    # 20 "Goodness knows what the total off-balance sheet costs of the various hospitals/schools transport etc PFI deals amount to."

    ...£58 560 100 000 spread over an average of 26 years according to The Private Finance Initiative (PFI) Signed Projects List

  • Comment number 22.

    re:2 - the MORI poll asked who public services should be run by - the obvious answer to such a question is inevitably going to be public run, it wasn't asking who should provide IT to HMRC or the NHS, but instead implies private running of those organisations

  • Comment number 23.

    - 19, the government have little accountability, unless you can take it to the press and make it a political issue they don't care - look at the tax office, they constantly rip people off and in my case have held the wrong details for me for 2 years, dozens of letters and phone calls from my end and they cannot (will not) change it and just ignore me, who do you go to? you can't change government office, no risk of losing the business, why should they care?

  • Comment number 24.

    There's no point in having the Private sector do things whilst the contact between the Public and Private sectors is a weak link.

    It really doesn't matter *who* does the work, as long as projects are badly managed, from requirement collection to testing, then projects will continually overrun and fail.

    The only advantage we have now is that the costings and overruns are now more transparent, but rather than question where the likes of the NHS went wrong with such projects the brickbats are immediately flung at the Private companies.

    It curious how many Private companies can manage to successfully complete projects in the private sector, yet when they try with the Public sector, they fail.

    This would indicate that maybe the source of the problem isn't entirely down to the company.

    Long before the likes of PFI and their ilk existed projects were getting cocked-up left, right and centre - it's just it was internalized so no one ever got to see the wasted money outside of Whitehall.

  • Comment number 25.

    Selling public services cuts right through to the core of the economy.

    In this post industrial age it is not in the government's interest to have all public works done efficiently. Ideally what is needed is a whole load of people beavering away hard at work thinking they are doing good for the country and quite separately another group of people that are actually performing useful work. By useful work I mean frontline health workers, teachers, police, firemen, armed forces etc. *

    The reason being that you do not want to have too many of the actual frontline workers active at any one time or else the service they provide would be unmanageable, inefficient and fail. Far better to have a smallish quantity of motivated people that know what they are doing.
    The problem then arises of what to do with the others; manufacturing industry has all but gone, automation has also taken its toll.
    Retail, hospitality, tourism, entertainment and other private services cannot absorb everyone wanting a job.
    That leaves makework or believe work. Makework is demeaning and has a bad reputation.
    Believe work has several advantages. Done properly people will actually believe that they are needed for the smooth running of UK PLC and will lead fulfilling roles in society. Ideal voting fodder too.
    That is the model that the government wants to export.

    * And obviously anyone else that thinks they are doing a worthwhile job.

  • Comment number 26.

    #24 and others.

    I absolutely agree with your point. Senior civil servants escape responsibility. It is quite possible to meet all the gateway reviews of Prince 2 but the project is a disaster.

    I do not think I am being cynical when I think that the whole methodology was set up by civil servants so that they could formalize the procedure for escaping responsibility for failure.

    It was reported that the NHS computer system, for example, was presented to Mr Blair with the promise that it could be implemented in two years- not 15 years. No sane individual would have agreed to the two years timescale, but Mr Blair got away with bullying those presenting it into agreeing to the timescale. Did the individuals concerned care? - I guess not.

    What can only be described as lack of backbone or intestinal fortitude must be the problem ( if we accept that those concerned had integrity). They let themselves be bullied, rather than resign - here is the essence of the problem - Senior Civil Servants know that they will be moved on before the brown stuff (no pun) hits the fan.

    Perhaps we should consider firing more Permanent Secretaries as we do not appear to have a culture where they see it as their duty to fall on their swords when things go seriously wrong?

  • Comment number 27.

    There seems an odd logic to the claim that competition drives down cost. In itself, it doesn't, because competition has its own cost. For some services, like running a call centre, that's not too heavy - you know roughly what it costs to handle a call to start with, and providers can be rated according to that cost and what extras they'll add to the bundle.

    But for one-off projects, and especially those that involve handing over the very business of government, as in any one of the famous IT projects, potential suppliers have to do a lot of research, design and planning work first. That costs a lot of time and money, and explains why the competitors seem to be increasingly limited range of multinational consortia who can, in many cases, name their own price (or go cost-plus, which is much the same thing).

    The other problem is that, in order to do the research, design and planning, you've to have information and skills that only the relevant government department has. This has led to the consortia and consultancies hiring a lot of civil service staff, and thus much of the talent. knowledge or experience has gone. That leaves clueless neophytes and talentless time-servers in charge of commissioning projects, for which they now have to enlist the help of the very consultancies who might be pitching for the business.

    In short, it's not competitive and it's not any cheaper. It's just reduced the civil service to the rump of a husk that, incredibly, manages to employ more people than ever before, while paying even more people (and their shareholders) to do the actual work.

    The only way they've got away with this is because (a) spending more money makes the economy look 'stronger' and (b) a lot of this money is off the books, tied up in never-never contracts. However, it doesn't stop it from being a profoundly dishonest way of running public services.

  • Comment number 28.

    The public sector is grossly inefficient. An example at local university hospital. MRI machine costing circa £1 million used less than 8 hrs a day. Private business would have it used 24 hrs a day 7 days a week, just like any high capital investment.

    And it has been made worse by Labour. If you want a Welsh Assembly staff it with the Welsh Westminster MPs. Why elect another bunch of hangers on?

  • Comment number 29.

    So far we have received little value when projects have been contracted out. Think PFI etc. There are few IT projects that have been a success, either within the NHS or any other dept. It is easy to be blinded by 'consultant speak'. You only have to listen to MPs, civil servants, administrators and they all use the lingo, 'consultant speak'. We spend far too much on contracting things out, and end up with nobody understanding where the project is going, and who has responsibility. Think of the cleaning, it is not rocket science, it has either been properly cleaned, or not. Not tricky. Interesting that Hutton and Julius express the industry as a top earner; it is public money, and I'm not sure that is justified to spend it in this way. The tragedy is that this is the real problem, they are not truely accountable, so we have to accept it.

  • Comment number 30.

    Remember the days when the civil service used to produce its own toilet paper (the stuff that was like grease-proof paper)?

    My point is that the public/private debate is a non-issue - all we should care about is whether a service is provided efficiently and effectively. Granted, some PFI is expensive and wasteful, but we could equally blame poor public service commissioning for that.

    What we should be blaming is poor leadership, whether that be public or private; but I guess that's not black and white enough for some people.

  • Comment number 31.

    One other problem of Public Service, is that it is sometimes quite difficult to value or identify it's outputs.

    For example:

    How much crime is prevented by a policeman patrolling an area ?

    What is the value of a person whose life has been saved by accident and emergency?

    What is the value of being able to quickly have your Passport dealt with and returned?

    What is the value of a Traffic Warden (preventing congestion)?

    Some of those examples may seem odd, but they all contribute to the ability of ordinary people to go about their daily lives peacfully and productively.

    And what cost would there be to People if these Services where not there ?
    How much impact would it make on their lives and efficiency?

  • Comment number 32.

    Mmm, Convertible Preference Shares, possibly the easiest way to raise capital when the Stock market is all wobbly......

    Sorry, just had my annoy shortsellers hat on for a moment.

    Anyway, Public Service's have generally been done publicly because the private sector was historically unable or unwilling to provide those services to the public at an affordable price or at an acceptable standard.

    I'm sure there are People out there who remember when they had to pay to visit the Doctor, and if you couldn't pay you didn't get.

    Good old Private Sector.

  • Comment number 33.

    It's just lke being back in the 80's.

    The fundamental problem all Governments have is their lack of understanding as to why there is a complete efficiency difference between Public and Private companies.

    For better or for worse, private companies drive down costs in pursuit of profit. Some would argue at the detriment of the workforce, others would say it's improving process.

    The age old problem with Public run institutions is that the government frankly 'can't be bothered' to run them. If a Public company was run intesively by the government then you would see great things - like SNCF (France) and soon to be TNK/BP in Russia (although this is arguable it's not a public company ;-o)

    However historically in this country these institutions simply get run down, become huge innefficient beasts and external suppliers increase their prices to these insititutions because they become so difficult to work with.

    Maybe a fresh approach is required. How about this for a solution - keep the institutions public, but allow them to make profit - in fact actively encourage it. This will ensure the same efficiency benefit is produced as in a private one. Yes pay bonuses, yes use profits to increase wages and attract the skilled workers. The big difference is that all the excess profit heads back into the Government coffers for re-distribution either in the form of investment and expansion, or in subsidising areas which are struggling to make headway.
    The profits can be used to provide social assistance (in the case of British Gas - subsidised fuel for the poor / needy / elderly). Just think how much more efficient it is to subsidise at source (as the energy supplier could) rather than the current process of BG charging and the customer having to get the cash from the government (who have to manage it all) in order to get the subsidy.

    Just imagine if the profits from British Gas were coming back to the tax payer? That would be like leasing out our institutions and having a continuous cash flow - rather than the fire sale - one off payment - which is usually burned off by some idiot government idea (like the millenium dome).

    Remember - MP's are like little children and sweets, you don't send your child to the sweet shop with a £50 note once a year, but you regulate their miney so they don't waste it on frivolous things.

    The only downside I can see with my proposal is that it might breach EU rules for governement subsidies - however this might just be a good reason for leaving the EU now!

    The problem with all the other schemes the Government proposes is that they simply become a way for private companies to re-direct public subsidy as pure profit. I cannot believe the Government cannot work this out (PFI being the last effort they made) which unfortunately leads me to believe the Government is NOT independent in it's thinking and is being driven by the Private sector who want to get their hands on the "monopoly money makers" - who also conveniently donated large sums of money to both parties campaigns.

    Typical Government, overcomplicating the problem to make themselves sound clever - but getting their knickers in a twist and getting screwed over by the private sector again.

  • Comment number 34.

    supercalmdown - you have eluded to the original fundamental failure of the free market.

    How do you measure and reward social costs and benefits?

    I strongly believe that the value of the Public sector worker is far greater than the private sector when you account for both economic and social benefits, but because the social benefits are not taken into account (and in fact abused) - the public sector wage is much reduced.

    This leads to a downward spiral, poor wages = poor staff = poor morale = poor production = government cuts = poor wages etc.

    Get yourself into a local council - and you'll see exactly what I mean. It was described to me as 'an extension of the dole queue' - which is a fairly accurate depiction of how it is. Long term employees with very little ambition or drive and certainly not much encouragement from the employer to imprve themselves.

    The government has to keep throwing money at these institutions just to keep them afloat - and this of course is going to get worse as time goes on.

    It's all so short sighted - there is always some short term pain before the long term gain, but unlike the French with their nationalised rail - every government we have seems reluctant to take on the pain for the short term.

  • Comment number 35.

    1.5 million increase in public and civil servants in the last 10 years... fact.


    So that they will vote for this government because their jobs depend on it.

    Increased spend in private sector for provision of public services.


    Increase dependancy on government spend for contractors and businesses, so that they will vote for this government because their livelihoods depend on it.

    Tax increases, both direct and indirect in the last 10 years, introduction of stealth taxes, double taxation on gross salaries in combination with NIC's, pillaging of pensions etc etc etc etc etc.


    To fund the above two points.

  • Comment number 36.

    and worst of all, inefficiency and poor service goes unmanaged, unpunished and unreported as it allows scope for further spend, hence drawing more voters into the cycle...

  • Comment number 37.

    Worse that this, doesn't this highlight that our private sector growth is reliant on handing over more and more public cash to private companies, and that the reduction in this cash outflow has conincided with the very real onset of recession - in short the single largest driving factor behind the economic success of the last 10 years has been government spending, fuelled by stealth taxes? Stealth spending of stealth taxes fuelling stealth growth? Is anything real anymore?

  • Comment number 38.

    Essentially as I alluded to in #25 we have evolved into a tax and spend economy.

    The difference between the UK model and the earlier established EU model is that we are lacking the power house of Germany.
    Germany until recently was the world's number 1 exporter of manufactured goods. That paid for a lot of tax and spend. Wealthy Germans spent in other EU states to keep everything on the go.

    And what does the UK have as a powerhouse? Well we used to have folk pumping up the house market..

    No wonder the government wants to export service methods. If all countries are run as we are then at least the Pound cost of commodities will drop.

  • Comment number 39.

    Chatham House's mission is "to be a world-leading source of independent analysis, informed debate and influential ideas". You've got to wonder how independent Dr Julius's report can be when she is a non-exec director of Serco, one of the major beneficiary companies of public sector outsourcing?

  • Comment number 40.

    In post 31 I tried to show how hard it is for an Accountant to put the work of the Public Sector into a profit and loss account.

    Mostly it just can't be done.

    Nor should it be.

    Certain standards of life should be expected by Citizens living in a technologically and philosophically advanced Society.

    These standards, by historical standards will not be supplied by a Private Sector.

    Or where they are provided, it will be to those who can afford to pay.

    Entitlement culture has been knocked for many years, but at some point there has to be standards.

    And these standards (ie Healthcare, Social Provision, care for the Elderly) will have to be met by the Government.

    And of course no one would consider it appropriate for the Armed Forces to be Privatised.

    Law and Order has to be provided Publicly.
    You can't have Private Police, or Private Judges.

    Certain aspects of Society have to be run in certain ways.

    Or the whole nature of Society changes.

    A balance needs to be kept between what is Private and what is Public.

    Unless we want to have a country like, for example Zimbabwe, where one Private clique, dictates to the whole populace.

  • Comment number 41.

    i agree with you robert - outsourcing public sector information is not all about handing over public sector to private sector. however, we may need some tap on private company to become part of public opinion; we dont want EDS and child agency episode again.

  • Comment number 42.

    I've just read the comments, and thought one thing should be made clear. The "third sector" is the term used for the voluntary sector, and most of the providers of commissioned health and social services are charitable institutions, not for profit, and delivering to those who, in the main, do not reach the eligibility criteria for statutory services, such as carers, those with mental health problems, those suffering from Motor Neurone Disease, etc, etc. Since the majority of comments seem to be voicing concerns about out-sourcing to private companies, and, I must admit, not having read the report, I am curious to know whether other bloggers are as concerned about the "third sector" contribution to public services, as we are certainly concerned that we are expected to deliver more and more for less and less resources - both financial and personnel.

  • Comment number 43.

    Good article, especially the point:

    "However all that really means is that the government has been handing vast and growing amounts of our tax revenues to private-sector providers of many and varied services. "

    In fact many of these private-sector providers - at least those providing Council services - are no more than cowboy companies set up to take advantage of this latest trendy political manoeuvre.

    People hear 'private' and think 'John Lewis' or 'Boots' type 'private' - so understandably they initially welcome the change from what they perceive as inefficient state/public administration.

    Instead they find that they are dealing with some slippery concern, run by directors with dubious financial history, and which uses glossy PR materials to obscure the fact that e.g. repairs are taking longer than previously, and costing far more.

    "Julius is brainy" - Julius may have academic qualifications aplenty, but if - like so many of her ilk - she avoids inconvenient truths about the actual efficiency of these 'private' suppliers in order to enhance her own public persona and attractiveness to the private sector (and thereby coin it in), give me an academic under-achiever running the country anytime.

    Sadly, many of these 'two-brain' political types are quite happy to let half the country rot in order to achieve their own selfish ends.

  • Comment number 44.

    Robert wrote "... though there are also plenty of examples of the public purse being handsomely ripped off by private sector bunglers and incompetents, especially when it comes to IT".

    When this Government introduced the notorious IR35 tax on freelancers in 1997, the conspiracy theorists had a field day, suggesting that the big (IT) consultancies were behind it as they wanted to eliminate the competition for these Government IT contracts from small, efficient IT companies.

    At the time I did'nt really subscribe to that view but now I'm not so sure.

    Ex-MP Martin Bell told us that there is a lot of corruption in Whitehall and when we see consultants from the big IT companies move seamlessly to senior Civil Sevants positions in Whitehall ...well, it smells very fishy indeed.

  • Comment number 45.

    #20 "Goodness knows what the total off-balance sheet costs of the various hospitals/schools transport etc PFI deals amount to."

    #21 "...£58 560 100 000 spread over an average of 26 years according to The Private Finance Initiative (PFI) Signed Projects List"

    This figure of £58.56 bn represents the Capital Value of the PFI projects. The same schedule also shows, for some of the PFI projects, what payments the Government is committed to over the contractual period of the projects: expenditure of some £191 bn has been committed in total, in relation to projects having an aggregate Capital Value of £34 bn.

  • Comment number 46.


    Very late, but appreciate the fact that someone is keeping an eye on the source information...

    Find it hard to believe the amount "we" have racked up in future commitments for our children.

    God help them - and their children too.

  • Comment number 47.

    Re: #16 smartWurzel

    Unemployment during the Labour years has declined by over 3 million in real terms as a result of PPP arrangements with a number of providers of welfare to work such as Working Links, TNG and Reed In Partnership.

    Of course, the huge fall in unemployment has had nothing to do with the unsustainable and massive tax, borrow and spend approach adopted by this Government over the last decade, nor the unsustainable and enormous consumer-spending binge that was fuelled by a massive rise in personal debt.

    From what you wrote, anyone would think you believed the Government's much repeated "the economy is fundamentally strong" mantra - so strong, in fact, that the Bank of England daren't raise interest rates even a quarter of one percent above the dizzying heights of 5% despite the surging inflationary environment...



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